It’s possible but in all my years in the industry I’ve never seen a perfect score. Credit scores, commonly referred to as FICO scores, the acronym for the Fair Isaac Corporation which developed the algorithm, are three digit numbers ranging from 300 to 850. Most conventional loan programs today will approve an application with a credit score around 680 but some programs go as low as 620. Government-backed loans accept lower scores such as FHA loans. FHA programs ask for a minimum score to be at least 580 with some allowances for scores as low as 500 accompanied by a 10 percent down payment. Low down payment conventional loans can require a score of 720 or better.
There are consumers who strive to achieve the highest score possible, whether or not they’re actually applying for a mortgage. And there are ways to better scores, primarily through payment history and account balances. Credit reports log payments as they’re made and can report payments that are more than 30, 60 or 90 days past the due dates. Making sure payments are made not necessarily on the due date but certainly no more than 30 days past due will keep scores getting progressively better.
Scores tend to rise more slowly compared to a score falling due to a late payment.
35 percent of the total score is attributed toward payment history. 30 percent of the score compares account balances with credit limits. Some consumers mistakenly think that keeping a zero balance is the way to better scores but in reality, that’s not the case. In fact, scores will rise faster if a balance is at or around 33 percent of credit limits. If you think about it for a second that makes perfect sense. How can credit be evaluated if there are no payments being made on an account? That’s why those who are always wanting to boost scores keep balance around one-third of credit limits.
Taking all of that into account, how high can credit scores actually be for an individual consumer? Personally, I’ve seen credit scores in the low 800s but those are relatively rare. Most credit scores, in my experience, have been in the low 700 range.
Finally, if there is more than one person on a loan application, lenders use the lowest qualifying score. Each credit repository, Equifax, Experian and Trans-Union, use the same algorithm but the reported scores will be similar to one another but rarely the same. This is due to the different reporting periods businesses use and not all businesses subscribe to all three. If one applicant has scores of 720, 740 and 738 while another has scores of 720, 680 and 710, the lender will use the lowest middle score of the two applicants. In this instance, the qualifying score is 710.
While striving to achieve the perfect score of 850 is certainly an admirable goal, as it relates to qualifying for a home loan, it’s really not that significant, even if someone does finally make it to the top.